An overview of the global market situation: electronic components
A market that has not calmed down for many years, a global pandemic, climatic changes and disasters - the issue of chip shortages is very complex.
The current situation on the market for electronic components is not only due to Covid-19. Back in May, we spoke to our strategic buyer Marcus Hartwig about the issue of component shortages. In our webinar at the beginning of September (only available in German), we discussed the topic with industry experts and distributors and are now providing an overview of the situation on the market.
Note
We published an update on the components market on 30 April 2024. Here you can find out more about the situation in 2024, production capacities and forecasts on the market.
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Influences that support the chip shortage
While an extraordinary winter storm is paralysing production in the USA, Asia is struggling with fires, droughts and earthquakes. And the global pandemic is causing demand for consumer electronics, home office equipment, etc. to skyrocket. An already strained market is working at the limits of its capacity, resulting in supply chain failures and bottlenecks that cannot simply be made up for. With so many interdependencies, it is difficult to maintain an overview. Put simply, the influences on the market situation can be summarised in five points:
Capacity problems due to Covid 19
Free markets are characterised by a large number of complex production steps. A single process can be distributed around the globe in various steps. With the spread of the coronavirus, many countries have been in lockdown since the beginning of 2020. The consequences: Production stoppages, supply chain disruptions and border closures that make it difficult to procure electronic components.
At the same time, many electronics sectors such as consumer electronics, home office equipment and medical technology are experiencing a boom as a result of the pandemic. The disrupted supply chains, among other things, are creating a significant excess demand and production capacities are reaching their limit in many areas.
Fire & heat in Asia
At the same time, fires and periods of drought in South East Asia are hampering the production of semiconductors.
- At the beginning of 2021, a Renesas chip plant in Japan caught fire and repairs took several months. Competitors are already at the limits of their capacity and are unable to absorb the losses.
- Two resin manufacturers in Korea and China experience explosions and major fires in quick succession.
- In Taiwan, a period of drought is causing problems with the water supply, which is also necessary for local chip production.
As a result, many production facilities in Asia are affected and have to deal with failures and shutdowns, some of which last for months. In combination with the capacity problems, this is leading to a disruption of the global chip and product supply on the world market.
Cold snap in the USA
The difference to the heat and fires in South-East Asia could hardly be greater. At the beginning of 2021, US states such as Florida and Texas are suffering from an extreme cold wave. Major chip manufacturers such as Infineon and NXP are forced to stop production due to the weather. Production can only be slowly ramped up again after a month, which means a loss of sales in the millions for the companies. The cancellations are affecting an industry that is already working at its limits.
Logistics problems
In the area of logistics and freight space, the Covid restrictions are clashing with consumer behaviour. While online trade is experiencing a boom and freight rates between Asia and Europe have doubled since 2020, handling at many ports has slowed down as a result of the measures.
Quarantine rules are disrupting processes in aviation and lorry transport. Irrespective of Covid-19, the US trade war with China and incidents such as the blockade of the Suez Canal are also causing further disruption to supply chains.
Global shortage of raw materials
The shortage of raw materials is not a local problem, nor is it limited to the market for electronic components. There are shortages everywhere - semiconductors, copper, resin, plastics, wood. The list goes on and on.
From mid-2020, a global economic recovery is emerging during the coronavirus crisis. The subsequent massive demand will lead to a bottleneck effect for many raw materials. There are not enough raw materials available to cover all requirements, which in turn slows down the economic recovery.
The situation in the semiconductor industry
The semiconductor sector operates in a very concentrated market. This is because 55% of the total market volume is brought to market by 10 manufacturers alone. On the customer side, however, the 10 largest customers together already cover over 40% of demand.
Looking at the regional distribution of demand in 2020, the Asian market has a share of 60%, North America is at 20% and the EMEA and Japan economic areas are each at around 10%. With the large markets in Asia and North America, manufacturers and suppliers are correspondingly more interested in serving them. The European region is therefore less of a focus for the semiconductor industry.
Development of chip delivery times
Semiconductors as such have a very long physical production cycle. The production time is usually around 30 weeks. The fact that delivery times of 12 weeks could be maintained until mid-2020 was primarily ensured by buffer stocks of finished products and die banks. With the economic recovery from mid-2020, stocks were gradually bought up. First the stock of finished products, which led to a doubling of the delivery time, i.e. almost 24 weeks. With the die banks running empty, the delivery time increased to around 35 weeks, which roughly corresponds to the pure production time.
This is where the described influences on the market and the manufacturers' fully booked capacities come into play. This results in delivery times of 50, 60 or even 100 weeks. Many manufacturers are overbooked and in some cases can no longer place orders. Distributors are also receiving signals from manufacturers that goods can only be delivered much later and at adjusted prices.
Consequences of the current situation
In the current situation, stocks of electronic components are largely depleted and the industry is living from hand to mouth. This is because the problems run through the entire procurement process, from the manufacture of electronic components through to their transport to customers.
Allocations are now part of everyday life, companies are only allocated partial quantities of their orders or suppliers even refuse orders altogether. Delivery times are extremely long and panic buying is the result. Electronic components have delivery times of 20, 30, 50 or even over 100 weeks. There is no planning security in the current situation.
Prices have already risen considerably and will continue to do so. This even affects orders that have already been confirmed, as manufacturers' prices fluctuate so much. In addition, many brokers are being used to procure components at exorbitant prices via various channels. And not only are components themselves becoming more expensive, logistics costs are also rising considerably.
To summarise: The entire electronics industry is facing acute and massive challenges in the supply chain. This is because the focus is no longer on price changes, but on deliveries in the first place.
What you can do now
- Pass on information to customers
- Plan with an extended horizon (at least the end of 2022)
- Increase replenishment times
- Cooperate with suppliers
We tell you more about our recommendations in our e-book (only available in German).
We will call you back
Do you still have unmet needs in your company or are you unsure how to deal with the current component shortage? Then let's talk about it together!
